- Ford's performance in the automobile industry.
- Management's bullish business strategies.
- Unsettled union contract still allows for positive ROIs.
During the past decade, the automotive industry has faced many challenges resulting in increased percentages of volatility. Although technical indicators pointing to a turn around, this volatility has had a tremendous effect on union based manufacturer, Ford (NYSE:F). However, after management change leading towards a soft economic moat, Morningstar's © 2010 CEO of the year, Alan Mullaly, has shed positive headwinds towards its quarterly financials YOY:
Revenue in USD
Gross Profit in USD
Operating Income in USD
Net Income in USD
"Common snags include:
-The additional costs & capital investments required to execute a solution business model are not accurately quantified.
-The time & effort involved in changing/extending the current operating system is underestimated.
-The changed/extended operating system does not effectively execute the solution business model."
© Copyright 2013 Institute for Strategic Innovation, Inc.
By reducing operating costs, enhancing customer satisfaction through increased mpg, alternative fuel, and vehicle software, Ford has seen its revenue grow by $29 billion since 2009. The company's dividends, outperforming its industry peers, have risen more than 100% since 2012.
Most of Ford's competition does not face Union concerns. With the industry already being so competitive, this could put Ford at a disadvantage. Union Auto Workers are still trying to eliminate Ford's tier 2 wage structure implemented in its domestic plants. A final decision on the employee contracts should be released towards the end of Q3 in 2014. Meanwhile, CEO compensation has reduced by 29% since last year, and total executive compensation has dropped more than 12% since 2013. Ford also no longer takes government loans.
Soft Economic Moat leading to a Profitable Narrow Economic Moat
Since 2006, Ford's shift in management has led to a smaller number of vehicle models offered. However, the customer value of the new services are higher, translating to drastic improvements in profitability. During these past 8 years, ROA has increased by 8%, ROE has gone up by 300%, and ROI Capital % has risen > than 13%.
With Ford Union Worker's contract negotiations settling in Q3 of 2014, volatility in share prices may occur. However, one of Ford's union competitors, General Motors Co. (NYSE:GM), is facing a lot of legal issues in regards to its ignition switch recall and air bag casualties. Since 2011, as the automobile industry has taken a dive, GM and F have recovered in similar patterns. GM's set back gives Ford a short-term marketing leverage over GM's analogous customer base. This disruption could level out the volatility set forth by Ford Union contract negotiations.
An analyst from Grants Inc., Thilo Koslowski, discusses how F was Microsoft's (NASDAQ:MSFT) biggest contract within the auto-industry. Aside from being used in vehicles like BMW and Audi, the QNX technology owned by BlackBerry (NASDAQ:BBRY) is also utilized in energy power-plants, U.S. military unmanned aerial drones, Cisco Systems Inc. (NASDAQ:CSCO), General Electric Co. (NYSE:GE), and Caterpillar Inc. (NYSE:CAT). This advanced technology for a smaller price should help continue the YOY increase in ROA.
Since management change, Ford has demonstrated a profitable global business model. Just this February, Ford held a 30% leverage on the industries growth in 20 European Markets. Closing global manufacturing plants YOY has helped Ford reduce its total liabilities by $27 billion since 2009. Narrowing their economic moat while harvesting their production abilities towards fewer plants, has actually allowed for increased volume of production; feeding larger returns. Total assets have increased by $37 billion since 2010.
Technical Indicators & Conclusion
Stochastic %K (14) at 24% and an RSI (14) of 42, do not currently indicate a bullish trend. However, when you look at the growth and operating income increasing by $11 billion since 2009, wouldn't it be smart to enter at a bearish price? Bollinger Bands © (20, 2) are closing in, and share prices are hitting the support bar; a shift in trend is likely to occur soon. OBV demonstrates a slightly downward momentum. As soon as share prices demonstrate an upward trend and OBV follows, the red light just turned green. Stay long, don't get emotional, reap the benefits from the YOY increasing dividend yield, and you might have a pretty penny in a few years.